Compulsory Retirement - Is It Allowed?

As a general rule, employers are prohibited from discriminating against employees on the basis of an employee’s age pursuant to the Employment Equality Acts 1998 — 2011 (“the Acts”).

The Acts provide for derogation from that rule. The derogation in respect of retirement ages is set out in section 34(4) of the Employment Equality Act 1998. That section provides that “it shall not constitute discrimination on the age ground to fix different ages for the retirement (whether voluntarily or compulsorily) of employees or any class or description of employees”.

In Ireland, there is no general statutory compulsory retirement age, (with the exception of some statutory based retirement ages in the public sector). Until recently when the position has become less clear, employers were provided with a broad discretion in fixing compulsory retirement ages. Such compulsory retirement ages may be contained as an express condition in an employee’s contract of employment. If no such provision existed, it was open to an employer to prove that a retirement age was an implied term of the employee’s contract of employment arising through custom and practice.

If a compulsory retirement clause was included in an employee’s contract expressly or proven as an implied term, an employer was entitled to safely rely on the provisions of section 34(4) as a defence to a claim of discrimination on the basis of age. However, recent case law from Europe has cast doubt on the reliability of section 34(4) as a defence.

The European Position

Article 6 of Council Directive 2000/78/EC (“the Directive”) provides that Member States may provide that differences in treatment on the grounds of age shall not constitute discrimination, provided that the difference may be objectively and reasonably justified by a legitimate aim, and the means of achieving that aim are appropriate and necessary. The Directive further provides that a Member State’s legitimate aim may include legitimate employment policy, labour market and vocational training objectives.

While section 34(4) of the Acts does provide for a difference in treatment on the grounds of age in respect of retirement ages, it does not set out that the retirement age must be objectively and reasonably justified by a legitimate aim. Recent case law at European and Irish level has illuminated this apparent lack of cohesion between the Directive and Irish law.

In the Spanish case of Palacios de la Villa — v — Cortefiel Services SA (Case C411/05), a reference was made to the European Court of Justice (“ECJ”) during the course of national proceedings whereby an employee was compulsorily retired at age 65, the age limit set by Spanish law for retirement. The ECJ ultimately concluded that a Member State could set a mandatory retirement age if the measure was objectively and reasonably justified and a proportionate means of achieving a legitimate social aim.

In this case, the objective justification was part of a national policy seeking to promote better access to employment, by means of better distribution of work between the generations. Accordingly, the ECJ held that the Spanish legislation was compatible with the Directive. In this case, the national provision referred to the ECJ did not expressly refer to such an objective.

It is important to note however, that the objective justification under the Directive must be based on social policy grounds rather than the individual needs of the business. Objective justification depends on the facts of each individual case. Social policy grounds may include creating opportunities in the labour market for those looking for work; to ensure better distribution of work between generations and to promote motivation by the prospect of promotion if senior staff retire.

The Irish Position 2008 to date

As outlined above, the Irish Equality legislation does not appear to comply with the provisions of the Directive in that the exemption set out in the Irish legislation does not require objective justification.

However, in the 2008 case of Donnellan v Minister for Justice, Equality and Law Reform [2008] IECH 467, Mr Justice McKechnie held that the imposition of retirement ages by means of national legislation must be “compatible and conformable” with the Directive. In that case an Assistant Garda Commissioner was subject to a statutory instrument which set a compulsory retirement age of 60. The High Court accepted the State’s submission that the retirement age was objectively justified on the grounds that the retirement age was necessary to ensure “motivation and dynamism through the increased prospect of promotion.”

Mr Justice McKechnie also stated that “any discrimination with regards to age must, as put by that Directive, serve a legitimate aim or purpose, and the means taken to achieve that purpose must be appropriate and should go no further than is necessary, i.e. they should be proportionate.” It appears that the Equality Tribunal has followed Justice McKechnie’s decision and has applied a less stringent approach than that set out in the Directive, i.e. the objective justification must be on social policy grounds. The decisions outlined below illustrate that the Equality Tribunal appears to take into account objective justification with regard to a legitimate aim of a business and not only social policy grounds as envisaged by the Directive.

In Saunders v CHC Ireland Limited Dec-E/2011/142, the Equality Tribunal held that the imposition of a compulsory retirement age of 55 for a winch man was appropriate and necessary to achieve the objective of health and safety of the people who require rescue by winch men and ensuring that operational capacity and proper functioning of a professional search and rescue team.

In Paul Doyle v ESB International Limited [Dec — E2012-086], the Equality Tribunal accepted that the imposition of a retirement age of 65 across all its employees to ensure health and safety of those working with electricity, and to ensure cohesion amongst all employees (irrespective of whether they worked with electricity or not) was a legitimate objective which was reasonable and proportionate. The Equality Tribunal accepted that compulsory retirement was necessary to offer career paths to employees to ensure “retention, motivation and dynamism” amongst the staff.

The potential application of the Hospira decision to retirement cases

The Labour Court decision Hospira v Roper and Others, Labour Court 29/4/2013 relates to redundancy payments paid to employees close to retirement age. The Acts provide for a further derogation from the general rule prohibiting age discrimination on the basis of age, allowing employers to take into account the period between the age of redundancy and employee’s compulsory retirement age when calculating severance payments.

At first instance the Equality Tribunal held that in order for the lower redundancy payment to employees nearing retirement age to be lawful, it had to be objectively justified. The Equality Tribunal found that caps on redundancy payments constituted indirect discrimination on the grounds of age and that the employer had not objectively justified such payments to make them lawful. Accordingly, the employees succeeded in their claim.

On appeal, the Labour Court overturned the decision of the Equality Tribunal. It noted that the Directive provides that Member States, rather than individual employers, can provide for differences in treatment on the grounds of age where those differences can be objectively justified by a legitimate aim.

The Labour Court found that when drafting the legislation the Oireachtas had apparently made such provision having regard to social and labour market policy.

The Court noted that the absences of precision in the legislation as to what aims were being pursued did not preclude justification provided that those aims could be ascertained from a reading of the legislation as a whole.

The derogation in relation to severance payments is similar to that set out in section 34(4) of the Employment Equality Acts. Similarly it may be argued that as the Oireachtas made express provision in relation to retirement ages that they must have considered it reasonably and objectively justifiable in the context of Article 6(1) of the Directive on social policy grounds.

This recommendation may impact on the issue of age discrimination in respect of the imposition of compulsory retirement ages, which is uncertain as it currently stands. However, it remains to be seen how the Equality Tribunal will interpret and apply the decision in respect of mandatory retirement ages.